United Kingdom Money Target Policy

UNITED KINGDOM MONEY TARGET POLICY 1
UNITED KINGDOM MONEY TARGET POLICY
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UNITED KINGDOM MONEY TARGET POLICY 2
Executive Summary
This essay evaluates the United Kingdom money target policy or rather the monetary policy from
the period 2016 to 2018. It shows the trend of inflation and interest rates over this period and
suggests what should be done by the government to foster economic growth. United Kingdom is
among the richest nations with free economies not only in the Europe Region but also in the
whole world. Its economic prosperity is as a result of keen formulation of macroeconomic
policies like the monetary policy among others. The central bank of the United Kingdom uses
two main tools of monetary policy which include interest rates and the quantity easing
(McCallum 2018, p.72). Inflation has been high in the United Kingdom and hence consumer
purchasing power has decreased over time. This has made interest rates to rise in order to counter
it. The United Kingdom monetary policy has been successful but still a lot needs to be done. The
government has planned to lower interest rates to 2.0 percent which is relatively lower and stable
in order to foster economic growth.
Introduction
United Kingdom is among the richest nations not only in the Europe Region but also in the
whole world. According to the 2018 Index Ranking, United Kingdom is among the top eight
countries in the Europe region with most free economies with a score of economic freedom
above 77.0. According to economic growth which is measured by the use of gross domestic
product, United Kingdom is ranked among the top countries in the Europe region and its
economic growth score is above the expected world and the regional averages (Barro 2017,
p.221). The superb economic growth results of United Kingdom have been contributed by its

UNITED KINGDOM MONEY TARGET POLICY 3
keen manipulation of the key economic growth policies which include the monetary policy
among others.
Monetary policy is one of the macroeconomic policies used by the central bank of every nation
to control their economic growth. It involves the manipulation of a nation’s prevailing interest
rates to influence the amount of money circulating in the economy hence controlling the level of
inflation in the economy (Hamburger 2018, p.25). The United Kingdom central bank uses two
main tools of monetary policy which include interest rates and quantity easing or asset purchase.
The central bank of United Kingdom sets interest rates at which the other banks in the economy
borrow money from it. These are called official bank rates. The central bank can also buy or sell
government depending on its economic aim. This is the quantity easing or the asset purchase.
The United Kingdom monetary policy from the year 2016 to 2017 has been discussed below.
Money inflation
Generally inflation is a reflection of the rate at which the general price of goods and services in a
given country rise considering a given period of time. It’s actually more of comparing the cost of
goods and services today with the cost of similar goods and services for the previous year. The
government of the United Kingdom has set an inflation rate of 2.0 percent. This is actually a
considerable inflation rate which is low and stable and assists the entire economy in planning the
future plans with greater certainty. A higher rate of inflation which keeps on changing over time
makes it difficult for business organizations to set the commodities prices and consumers to
budget their daily spending (Kontonikas 2016, p.525). Considering the period 2016 to 2018, the
United Kingdom inflation rates have been rising having been higher during the year 2017. This
has actually seen the price of commodities rise over this period and for now the 2018 price of